Southwest fined $140M for Christmas meltdown
2 million people had travel plans disrupted
The Transportation Department fined Southwest Airlines $140 million for what it said were multiple violations of the law during its meltdown around last Christmas and New Year’s, while also ordering the airline to establish a $90 million fund to compensate passengers affected by future delays.
The department said the penalty announced Monday was 30 times larger than any it had issued in the past for breaches of airline consumer protections. Southwest disputed the Transportation Department’s legal conclusions but agreed to accept the fine, according to the order setting out investigators’ findings and the terms of the penalty.
“Taking care of passengers is not just the right thing to do — it’s required, and this penalty should put all airlines on notice to take every step possible to ensure that a meltdown like this never happens again,” Transportation Secretary Pete Buttigieg said in a statement.
Problems began when freezing weather hit much of the country shortly before Christmas and continued more than a week. The airline ultimately canceled or significantly delayed about 16,900 flights, disrupting the travel plans of 2 million people, according to the Transportation Department’s investigation. While problems began with weather, other carriers bounced back as Southwest struggled with a staff scheduling system that unions had warned was a weakness.
Southwest has estimated the disruption cost it $800 million in lost revenue and payouts to cover the alternative travel costs of passengers. It also led to Southwest’s chief operating officer testifying before Congress. The Transportation Department said Monday that Southwest paid $600 million in refunds and reimbursements to affected passengers.
Southwest acknowledged it faced unprecedented challenges last Christmas but said in a statement Monday the investigation reflects how the carrier moved quickly to aid its passengers and had responded “with diligence and in good faith.”
“We have spent the past year acutely focused on efforts to enhance the Customer Experience with significant investments and initiatives that accelerate operational resiliency, enhance crossteam collaboration and bolster overall preparedness for winter operations,” said Bob Jordan, the airline’s chief executive.
Southwest said it has taken steps to improve reliability and that the carrier performed well during Thanksgiving and other busy holiday periods this year.
The airline will receive credit toward the $140 million penalty for creating the compensation fund and issuing rewards points to customers affected by the disruptions. The airline will pay the government $35 million.
The compensation fund will allow customers who are at least three hours late to their destination because of a delay or canceled flight for reasons within Southwest’s control to request a $75 voucher. The fund is scheduled to launch by April 30.
As part of Monday’s announcement, the Transportation Department said it was closing an investigation into whether Southwest had established an unrealistic schedule last December without reaching any conclusions.
Consumer advocates said the penalty imposed on Southwest would send a signal to the rest of the airline industry.
“The DOT has sent a forceful message to Southwest after its epic mistreatment of millions of passengers last December,” said William J. McGee, a senior fellow at the American Economic Liberties Project.
But Ken Quinn, a former chief counsel at the Federal Aviation Administration, said it was unclear what effect the enforcement action would have because airlines already have financial incentives to avoid cancellations and treat passengers well.
“I didn’t see any evidence whatsoever of Southwest purposefully neglecting their business,” said Mr. Quinn, a partner at law firm Clyde & Co. “Is this really deterrence or is it unneeded punishment?”
The investigation that resulted in the fine focused on breaches of protections for passengers whose flights were either significantly delayed or canceled. The Transportation Department said its investigation included an examination of tens of thousands of pages of documents, multiday audits at Southwest’s Dallas headquarters and a review of thousands of passenger complaints.
Investigators ultimately concluded Southwest failed to provide passengers with proper notifications that their flights were canceled, didn’t offer sufficient customer service and failed to refund thousands of customers promptly.
In the federal agency’s document summarizing the investigation, Southwest acknowledged the challenges it faced but disputed that it engaged in unfair or deceptive practices that broke the law.
“Southwest strongly objects to the DOT’s finding that it engaged in a deceptive practice with respect to its call center operations during Winter Storm Elliott,” according to the document. “Southwest stresses that it did not misrepresent its call center capacity or wait times, or make any statements that created the impression that it is able to answer all calls in a certain amount of time during a severe weather related disruption.”